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Regaining trust in financial sector ‘not the regulator’s job’: APRA

Regaining trust in financial sector ‘not the regulator’s job’: APRA

The prudential regulator’s chair has told industry leaders that the responsibility of regaining the public’s trust in the financial sector ultimately falls upon the industry, not the regulators.

On Tuesday, 4 September, APRA chair Wayne Byres addressed the annual Risk Management Association CRO Conference in Sydney and spoke about regaining the community’s trust.

“The broader community has lost confidence that the financial sector understands and acknowledges the privileged position that it holds in society and the obligations that come with it,” Mr Byres said.

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The chairman said that issues brought to light by the royal commission were now front and centre of the public’s consciousness and it was up to the industry to build trust.

“It is not the regulators’ job to regain that trust for you; the industry needs to earn and sustain the community’s trust through its own actions,” the chairman said.

“There are, however, a range of regulatory and supervisory activities that APRA is pursuing that will support and reinforce your own efforts to restore the industry’s standing.”

Mr Byres reiterated his support for APRA to play a role in risk culture and said that APRA was primarily interested in what effects poor risk culture would have on the banks.

“APRA is primarily interested in the potential for a poor risk culture to produce bad outcomes for the bank (and hence depositors),” the chairman said.

The prudential regulator is currently in a process of rescoping their pilot risk culture assessment to make it more usable on a wider basis, according to Mr Byres.

“We don’t seek to prescribe the risk culture either. We expect executives and their boards to establish and maintain the risk culture that they consider (and note, we do expect a conscious consideration) to be appropriate to their organisations, given their strategy and risk appetite.”

Mr Byres said that an important part of regaining trust was in the commencement of the Banking Executive Accountability Regime (BEAR), but the work is far from over.

“The BEAR clearly has teeth, and use of the BEAR’s enforcement provisions will demonstrate to the community that there are going to be clear and material consequences for poor prudential outcomes,” the chairman added.

“Where I hope the BEAR will have a positive impact is through forcing the industry to hold itself to account much more firmly and quickly than has been the case to date.”

The last area that the APRA chairman flagged concerned remuneration. Mr Byres was keen to stress that APRA is not involved in determining who gets paid what.

Mr Byres said, instead, that APRA had reviewed remuneration policies throughout their entities and found that the frameworks across the board did not consistently meet the objectives of encouraging good behaviours.

“From insufficient challenge to insufficient documentation, it was clear that stronger governance of executive remuneration is needed,” Mr Byres said.

Concluding his speech, Mr Byres said that if the industry worked together to improve risk culture, accountability and more balanced performance measurements, then the trust in the sector would return.

“As much as we might help, you will have to do the heavy lifting. It will ultimately be the industry’s collective behaviour that determines the extent to which the trust and confidence of the community is regained,” Mr Byres said.

[Related: Banks facing mortgage market ‘dilemma’]

Regaining trust in financial sector ‘not the regulator’s job’: APRA
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